New initiatives to expand and promote entrepreneurship in Western Massachusetts

New initiatives to expand and promote entrepreneurship  in Western Massachusetts have been launched and angels including Paul Silva are leading the charge two hours west of the nearest Red Line station.

“Startup hubs like Silicon Valley, Boston, and a few others offer vibrant ecosystems that nurture companies from seed to harvest.  But most of us don't live in one of these hubs!”  says Paul Silva, manager of the River Valley Investors . “Entrepreneurs can migrate to these areas, but they first need to get enough momentum to make it worthwhile.  Most entrepreneurs don't start out that way - they have lives and families and responsibilities tied to another  geography.  So the startups never start.

“In an ideal world, there would be a vibrant ecosystem to support the formation of startups everywhere.  Then, when the ventures were mature enough, they’d  migrate to another area if that made sense.  We can't all be Silicon Valley - nor should we try.  But we can all work to make our own communities as supportive of the entrepreneurial spirit as possible.

“Over the past 10 years my community, the Pioneer Valley (AKA Western Massachusetts), has succeeded in building a great "intro to entrepreneurship" academic structure at all of the colleges and universities (thanks in large part to the work of the Harold Grinspoon Charitable Foundation).  But when our top students finished the class... then what?  They could certainly use more academic training, but what they really needed was real-world experience.  They needed mentoring.  

“The UMass Amherst Entrepreneurship Initiative saw this problem and reached out to its friends (especially Steve Willis of Common Angels) to create Valley Venture Mentors, a venture mentoring program inspired by the MIT Venture Mentor Service.  We launched it in February of 2011 and it has been a runaway success.  We have dozens of mentors helping almost a dozen exciting startups ranging from nonprofits to high tech and everything in-between.”

 How it works:  put the right people in the same room, give them just enough structure, and facilitate beneficial collisions.  The program meets monthly so that mentors have a chance to build real relationships and see how the ventures evolve over time.  Between the monthly sessions mentors give as much, or as little, time to each venture as they feel appropriate, with no long-term commitments or expectations.  The program's leadership monitors mentors and entrepreneurs that choose to deepen their relationship.

These monthly events are designed to generate excitement. In crisp seven minute presentations the entrepreneurs tell their stories and ask for help in addressing specific hurdles.  During the second part of the session, the mentors divide up in separate rooms with the entrepreneur of their choice, and begin to plan, create, and problem-solve.  Each meeting includes a mix of former presenters and debut appearances.

The mentoring program is open to angels, but also to non-accredited investors that meet the group's criteria.  This openness has brought in an amazing group of folks who have made a real impact on the entrepreneurs we are helping.  The mentoring program is not meant to be a funnel for investments - the companies are too raw and early... but we don't complain is one is a good fit for investment.  “One team recruited its CTO from our mentors and will be presenting to my angel group next month,” says Silva.  “This is a team that didn't have a chance at raising money six months ago - it was just a URL and a concept on paper.

“The model has proven extremely scalable and cost-effective. It is far too early to tell, but it is our hope that we have a model that can easily be replicated in other geographies.”  

Entrepreneurs praise this program. “They’ve helped me make critical decisions and move forward to make this business become a reality. says  Marcie Muehlke, founder of Joya Bride.  “It would have been a lot more difficult and slower without them.”  Muehlke was one of several VVM startups, mentors, and founders to be featured in BusinessWest on the impact VVM has had in growing the local entrepreneurial ecosystem.  To read the full article, visit here. 

A key component of the ecosystem is the River Valley Investors angel group,  co-founded by Joseph Steig in 2003. Paul Silva joined  in January of 2004 as an associate, becoming manager  of the group in 2005.  He became  prominently visible in the region about three years ago, when he took on responsibility for screening deals for our  NE ACA regional syndication meetings.  Since January of this year, he has served as principal organizer of these meetings.

Most recently,  Silva has  been named  associate director of the UMass Amherst Center for Entrepreneurship and Innovation Management, a new center dedicated to helping students create new products, services, and ventures.

With the creation of this new Center, funded by the Isenberg School of Management, “there are finally resources to achieve some of the dreams many of us have had for UMass for many years, “ says Silva, himself a graduate with a BS in computational physics (2000).   “The new position is half time, so I continue to serve as executive director of Valley Venture Mentors and as Manager of my angel group the River Valley Investors in the other half. I sadly had to step down from a number of exciting positions to make room, but I believe it will prove well worth it.”

Of his work in total,  Silva says “It is early days, but they are exciting ones.  And I think if we can do it here in Western MA with the models we are using; it is possible for lots of other regions of the country to help their entrepreneurs get started.´

What should he tackle next?  Maybe a Red Line stop on the Smith College Campus adjacent to the new engineering school, thus joining the Pioneer Valley to America's Technology Subway.   Watch this space.

TechStars Boston Demo Day videos available.

Even if you were not one of the select 800 who attended TechStars Demo Day earlier this month, you can still watch the thirteen official videos. “It was a great celebration of entrepreneurship,” says Managing Director Katie Rae.

 “I have linked to videos of the presentations below.  If you find a company interesting and want to keep an eye on them, please contact the CEO and ask to be added to their update list.  Many of the companies have funding rounds coming together soon, if you would like to take part please reach out so they can make room for you.

“Lastly, applications for our next Boston session are open now, please encourage great startups to apply at apply.techstars.com.”

SimplyGood - Makes mobile couponing simple  http://techstars.wistia.com/m/624yyU

docTrackr - Document tracking and metrics  http://techstars.wistia.com/m/G94ynm

Zagster - Bikes as a service  http://techstars.wistia.com/m/Je4z6W

Laveem - The nexus of all food knowledge  http://techstars.wistia.com/m/Mk4z40

Libboo - Home of the next digital bestseller  http://techstars.wistia.com/m/Ak4z4y

Bison - Platform for alternative investments  http://techstars.wistia.com/m/qG4z6u

psykoSoft - Creative software factory  http://techstars.wistia.com/m/Bi4z0u

Murfie - Where your music belongs http://techstars.wistia.com/m/gp4yzU

Mortar Data - Easy Hadoop in the cloud  http://techstars.wistia.com/m/6G4yv0

Shopsy - The retail graph  http://techstars.wistia.com/m/wM4z3Q

Testive - Engaging test prep http://techstars.wistia.com/m/c44yrm

Pact - Mobile app that incentivizes regular exercise  http://techstars.wistia.com/m/OI4yso

Ubersense - Helps athletes and amateurs improve anywhere, anytime  http://techstars.wistia.com/m/No4yCU

Angel Investing – 11 Interesting Facts and Figures

(A guest post by Loren G. Carlson and Ian Smith)

This is an interesting portrait of Angels.  More and more start-ups are looking to ‘angels’ for seed (and beyond) financing, even though they know that angels can complicate future rounds of financing.  Buried within all of these statistics one that caught my eye is only 6000 companies sold for $10m or more.  Also, we can assume that the ‘80-20’ rule applies to angel investing meaning that you need to work very hard to raise a little money.  Based on recent experiences in CEO Roundtable it seems that high net worth individuals are currently a preferred source of financing, especially in biotech.  VC investing is returning to some sectors – those that are currently in fashion like high tech (a new bubble?) and healthcare.

I was inspired this week by Scott Kirsner’s article – Mass. IPOs don’t create many angel investors. I thought it would be interesting to pull a few facts and estimates together for our entrepreneurial community. I think these numbers bust a few myths and may surprise some prospective investors.

1.  There were 318,000 active angel investors in the US last year up some 20%. (Center for Venture Research)
2.  They invested $22.5Bn up 12.1%. (Center for Venture Research)
3.  This implies an average angel investment of $70,755.  (Center for Venture Research) (larger than I would have guessed)
4.  The $22.5Bn was invested across 66,230 companies, an increase of 7.3%, implying an average deal value of $339,725, 4% increase.  (Center for Venture Research) (larger than I would have guessed)
5.  The sectors attracting that money were in order: Software 23%, Healthcare 19%, Industrial/Energy 13%, Biotech 13%, IT Services 7%, Media 5%. (that’s 80% of it) (Center for Venture Research)
6.  Angel investments that exited in 2011 did so 54% of the time by selling out and 24% of the time by going bust. (Center for Venture Research)
7.  In addition to this analysis, the first ever HALO Report issued by CB Insights in conjunction with Silicon Valley Bank and the Angel Resource Institute attempts to dig deeper into Angel Groups not just individual angels. Their analysis provides even further insight to Angel GROUPS. Specifically  these groups invested $873m in 2011. (which implies to me 4% of the total market investment above of $22.5Bn)
8.  The $873m was invested in 573 deals at an average deal value of $1.5m and a median value of $700,000, up a whopping 40% increase over 2010.
These seem really high to me.
9.  Regionally the $873m was spent in order: California 21%, Great Lakes 15.5%, New England 14.6%, Southeast 12%, Southwest 8.9%, Mid Atlantic 8.9%, Northwest 7.2%, New York 6.6%, Great Plains 4.1%.
10.  Sectors wise Angel Groups spent their money 37.4% of the time on Internet and 23.5% on Healthcare, that’s 61% right there. Mobile picked up 10.4% and Energy 4.3%.
11.  The active Angel Groups were named by Halo as: Tech Coast Angels – Southern California, Golden Seeds CA, MA, NY, Band of Angels (great name) Menlo Park CA, Central Texas Angel Network, Austin, TX and Launchpad in Boston, MA.

Conclusions

1. I’m quite surprised there as many as 318,000 active angel investors given how few businesses sell out every year for $10m or above (6000) thus creating US angel investors.
2. I suspect there is a Powers Law curve at play and that a tiny % of big hitters of the 318,000 are skewing the average towards $70k.
3. We need to conduct more research to understand the make up of 318,000 active investors compared with only 573 deals tracked by the Halo Report of active Angel Groups.
4. I worry that at both the macro $22.5Bn level and the smaller sample of Angel Group level there remains a dominant software & healthcare mentality at the expense of Energy, Media and IT services. It almost implies that software and healthcare are less risky than other sectors or perhaps the management teams just tell a better story!

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 This post, the first paragraph written by Loren G. Carlson, Chairman of the CEO  Roundtable, was posted in   CEO News, CEO Roundtable, Members In The News, and Success .

The 11 Facts and Figures were original presented by Ian Smith in his blog The Smith Report at Portfolio Partnership.  His latest book is  Fulfilling the Potential of Your Business.

Ever wonder how we early stage investors became known as angels? I’ll tell you the story.

Back in the mid-1970s, at the University of New Hampshire, Bill (Prof. William) Wetzel was researching how new companies raised startup funds.  His studies uncovered a new class of investor:  high net worth self-made individuals who were willing to take greater risks or accept lesser returns than others. More importantly, these investors provided more than money; they provided the benefit of their experience, which was often of more value than the amount of money they could invest.  A typical investor would develop a portfolio of four or five companies, typically located within a day’s drive of his home.

But what to call these patrons?  It occurred to Wetzel that these investors had much in common with the legendary angels of Broadway, who supported young artists out of a sincere interest in promoting the careers of talented people.

Thus Wetzel began to call his business investors “angels.”  “We didn’t originate the term, we stole it from Broadway,” he says.  Then along came Inc. Magazine, where the term first appeared in print in an article, “The Truth about Angels, More Than a Myth.”  Thus did we become angels, are angels, and most likely will be called angels in the future, as the term becomes even more institutionalized  in the names of many angel groups and in internationally recognized  trade groups, such as our Angel Capital Association.

Epilog: How art thou fallen from heaven, O Lucifer, son of the morning! Isaiah 14:12

Most Broadway angels have faded from memory, but here in the Northeast the fame, or rather notoriety, of one particular angel may serve us as a cautionary tale.

Harry Frazee, a well-known Broadway angel, added the Boston Red Sox to his portfolio in 1916. The team, which won the World Series in 1918, was stocked with great players, including a young pitcher/hitter named Babe Ruth.

But by 1920 Frazee’s finances were depleted, so he sold Babe Ruth to the New York Yankees for $125,000 in cash and a $300,000 mortgage on Fenway Park.  No trade, just cash. In rapid order, Frazee, who had purchased the Red Sox for $500,000, sold and traded additional players for at least $155,000. In 1923 he sold the team, now the worst team in baseball.

With money from the Ruth sale, Frazee backed several Broadway plays, one of which, when rewritten as a musical comedy, became “No No Nanette,” the biggest hit of the era. Once again Frazee was rich, but in the minds of my parents and grandparents generation, he became the most despised man in Boston history.

So what Had Frazee become? He had bought a great team, sold off the assets, destroyed the hopes of millions of fans young and old, while enriching  only himself. Had he passed in rapid succession through angel investing into venture capital and straight on to private equity? They say that just because a vegetarian starts eating meat doesn’t mean he has to go all the way to cannibalism.   All we know for certain is that from 1920 onwards, Harry Frazee was most assuredly   Ruth-Less.

The Red Sox didn’t win another World Series for 86 years, a drought often called “The Curse of the Bambino.”

 The Launchpad Venture Group reports record investments in 2011. “We invested in 20 companies last year.   Nine of the investments were in new companies and 11 were follow-on investments.   This was about double our pace from prior years,” says Managing Director Ham Lord. Total invested was $4.4 million.

“Already, 2012 is starting off fast with 3 new investments and 7 follow-on investments.   And, we are actively fund raising for a fourth new deal,” he says.

The UNH Center for Venture Research reports that total angel investments in 2011 increased 12.1 percent over 2010; ventures receiving angel funding increased 7.3 percent. Based on the success of Launchpad, and the earlier record results reported by the Common Angels, it appears that our local angels may be far exceeding their peers in other regions.  Does any other group wish to report in? 

 Launchpad is now the largest angel investing group in the Northeast, with more than 90 active members coming from a variety of backgrounds and professions, including the technology, financial service, industrial and life science communities.   Launchpad currently focuses on investments in the technology and life-science spaces and select opportunities in the green space.

Our congratulations go out to Launchpad Managing Directors Hambleton Lord and Christopher Mirabile.

How can we explain the incredible shrinking venture capital industry

How can we explain the incredible shrinking venture capital industry and the disappearance of many venture funds before our very eyes? In an article, “How Venture Capital is Broken,” Felix Salmon of Reuters recommends a new Kauffman Foundation study.

“I read quite a lot of papers about finance and investing, but I can’t remember the last time I came across a 52-page paper which I simply devoured, avidly, reading every word, and even following the footnotes,” says Salmon.  “ But such is the latest publication from the Kauffman Foundation, on the foundation’s own experiences in the world of venture-capital investing. This is required reading for all institutional investors with any kind of exposure to VC, and I sincerely hope that it succeeds, at least at the margin, in forcing those institutional investors to behave a bit more like investors, and a bit less like chumps being bullied into throwing millions of dollars into a series of opaque black boxes delivering decidedly subpar returns.”

As we angel group members know well, The Kauffman Foundation, created to encourage entrepreneurship, has contributed significantly to the development of the angel community and to the formation of the Angel Capital Association. Apparently, its endowment currently stands at $1.83 billion. Of that, $249 million is invested in VC and growth equity funds; the foundation has been investing in VCs for 20 years now. “As a rich, long-term institutional investor devoted to the cause of early-stage companies, the Kauffman Foundation is — or should be — pretty much the perfect LP as far as VC funds are concerned. And indeed, over the years, it has invested in 100 such funds, and therefore now has a spectacular real-world backward-looking dataset of VC returns from an LP perspective,” says Salmon.

“This is the kind of dataset that money, literally, can’t buy: VC funds’ investment agreements have such tight confidentiality clauses that Kauffman and other institutional investors would never be allowed to share this information with anybody else. But by anonymizing their data, and by self-critically coming clean on their own returns from venture capital, Kauffman’s investors have managed to put together a detailed and compelling report with a very simple conclusion: venture capital is not much of an asset class, and insofar as it is an asset class, it’s very, very broken.

“Over the past 20 years, net of fees, Kauffman has been paid out 1.31 times, on average, the amount that it invested in any given fund — well below the standard “venture rate of return” of twice committed capital. The payout is meant to come after no more than 10 years, but the 10-year figure is honored mainly in the breach: Kauffman alone has 23 funds more than 10 years old, and eight funds more than 15 years old. One fund, at age 19, still retains more than 20% of the capital that Kauffman committed way back in 1992.”

If the charts in this document would reproduce properly in this blog format I’d introduce them right here, but instead I’d recommend clicking through.

It appears to me that over the very long term, those few angels I know who maintain rigorous records and share them  have earned returns  far exceeding the numbers in this report. I’ll have to refresh my memory, but I recall that George Schwenk of the Breakfast Club and the late Luis Villalobos of the Tech Coast Angels both generated long term net returns exceeding twenty-nine per cent.

You can find the complete report here.

TechStars Demo Day is certainly the talk of the town today, particularly among start-up investors and entrepreneurs.  Thirteen companies presented to an audience of 500 investors, half Angel, half VC, yesterday. Premier tech journalist Scott Kirsner estimates that the speakers had lined up commitments of $5.5 million before the meeting even started.   I doubt our venerable City on a Hill has ever seen the likes of this event before; there will be another one coming up at the end of the year.

 If you would like to know more, click here to read Kirsner’s scorecard of the companies: what they do, who's involved, and how much money they've raised or are seeking.  He also presented his own innovation economy awards.   His Most Compelling Presentation award went to Chris Howard of Libboo.  Click here to see the others.

TechStars is what a called an accelerator in that it provides workspace, advice, and that most scarce of resources, cold hard cash, to fledgling entrepreneurs.   Companies accepted into the program receive $18,000 in seed funding in return for six percent of their stock. They are also offered an additional $100,000 in convertible debt. Participants get free office space for the duration of the three-month program, mentoring, and the opportunity to present to a group of investors at its conclusion.

TechStars is a relatively new concept. It was founded in Boulder by David Cohen, Brad Feld, David Brown, and Jared Polis in 2006. In 2007, I invited CEO David Cohen to speak at our regional angels’ syndication meeting here in Portsmouth, NH.  In 2009, Bill Warner, impressed with the program’s success in Boulder, pushed Cohen and Feld to clone the program here in Boston.  About six months ago Katie Rae became the Managing Director here. The results are both obvious and gratifying. Congratulations to all involved.

Some brief thoughts.  If you are an entrepreneur, work even harder. This program is exceedingly competitive, only one per cent of the applicants for this session were accepted. And buy a Charlie Card, you'll be going to lots of seminars and meetings.

If you are an angel investor, keep searching. Without good connections, you’ll most likely be shut out of these particular financings.  But since these companies represent only one per cent of those applying, search for pearls among  the other ninety-nine per cent. Look particularly at local companies that might not fit the TechStars profile.

Common Angels Announces New Investment Record in 2011; 2012 on a Similar Pace. Last year with 21 rounds in 17 startups, the Common Angels funded the most companies in their 13-year history. 

“This year is on a similar pace, with five investments already to date. We will announce a few new deals soon once those companies are market ready. 

“For follow-ons, we had substantial participation in a new $12.4M financing round in March for mobile app management rockstars, Apperian. The startup has seen tremendous success with its cloud-based platform, Enterprise App Service Environment (EASE), and we're thrilled to be a part of their continued growth!”

These results support the surge in angel investing reported elsewhere.  Common Angels is in a way our regional flagship in that they have the most money under management.  They are also one of our largest groups, although Lanchpad has recently passed them in membership.

Additionally, they are one of our oldest groups still operating, founded after The Breakfast Club and Walnut Venture Associates and just before the eCoast Angels and Launchpad.